January 15, 2015

totallygroovygirlfriday has been super busy with real estate the last few years. Things are going well so far.

Groovygirl came across an interesting book by Tony Robbins. It’s called Money, you may have seen it. Tony has been making the rounds on TV/internet.

This is a heavy book, very dense (600 pages). It doesn’t focus on gold or silver. But gg likes it because it gives an overall education regarding investing , especially 401ks. (You know how gg feels about 401ks.) This goes beyond debt reduction and teaches you about investing and what to look out for.

If you are an advanced investor, don’t worry about it. But if you have a friend that is out of debt and looking for the next lessons to learn, suggest this book. Tony’s cheer-leading way of writing may help give a boost where you fail with a friend. Investing and markets can so confusing and depressing sometimes, that people just give up.

600 pages….skip around for the info you need, if you find that overwhelming.

June 6, 2014

Peak Prosperity had a great post this week on the US housing market. Click here.

Groovygirl is posting this link for the same reason that Brian did: housing is in a long term decline. What happened in 2007-2008, will happen again. Do not get caught upside down in your primary residence. Brian from Chris Martenson’s website highlights a few of the reasons and backs them up with charts.

Remember what happened when people were upside down in their house last time? They just walked away or lived there without paying anything. Mortgage Securities had assets on their books, but no interest income. Mortgage Banks had tons of empty houses that were costing them money, not bringing money in. Because of the large amount of foreclosures, banks couldn’t sell all their assets at once, it would have tanked the market (not just caused a decline). So houses stood empty.

We have the certainty of this happening again, but this time hedge funds own a lot more houses than they did in 2007. Whether the government chooses to “bail out” the owner or not, the debt must be taken down. The steepness of the decline will be determined by the government’s policy reaction. The US housing market for the last 60 years has been built and sustained on higher debt, higher prices, and debt availability. Investment in housing is sustained by income exceeding expenses/loan payments and then selling higher for a profit. These are the long time models that are breaking down. 2007 was just the first leg. That doesn’t mean you shouldn’t buy. It means the investment plan and exit strategy are different.

The most dangerous words ever spoken are: “This is how it has always been done.” And in this paradigm shift of everything and on a global scale, that mindset is extremely dangerous. Beware of anyone saying that to you, especially someone who is handling your money. They must explain to you why “doing it this way” will work if the economy/trend goes up, down, or sideways for the length of the investment.

But some other reasons not mentioned for the housing decline are:

lower income/higher expenses equals less qualified mortgage apps

banks demand higher down payments, which require time to save additional money

investors, foreign and domestic (i.e hedge funds and REITs), are driving up prices with cash deals. This will not last.

groovygirl says: not all housing markets will drop severely, like Detroit. The national average is just that: a national average. That is why you must know and watch the local real estate market of your residence/investment. How much are houses selling for in your area and to whom? Are they all cash sales? How many are first time buyers? What is the average age? How many rentals are in your area? Is your local school district improving or declining? Are good jobs coming or leaving your area? And do not ask a real estate agent. They are salesmen, not investors.

For instance, in my area(s) in the last six months, real estate agents are listing houses for 15-30% more than what they actually end up being sold for. (List vs. sold price for houses going thru an RE agent.) And this is in a market with low inventory. They are assuming low inventory will drive prices higher. That is not happening. So just looking at list prices on your block may not give you the complete picture. And if you are buying, this is good info, so that you do not overpay for an investment.

There are more and more for sale by owner, short sales, auctions, and private sales before anything gets to real estate agent systems. Agent data is not necessarily the complete current market. Watch your local trends completely and closely.

May 14, 2014

groovygirl found some interesting news reports. Good info to keep in mind as we move along this overall decline.

Click here for where the non-students are getting their consumption money since the housing crash.

Americans withdrew about $57 billion from 401(k)s and IRAs in 2011, paying about $5.7 billion in early-withdrawal penalties to the Internal Revenue Service—an increase of 37% over the previous decade.

$57 billion in one year! There are some troubling truths and consequences from this revelation. Some people have probably taken early retirement money, they lost their jobs and are close to retirement age. Some people are maxed out on credit cards, debt availability, and their house as a ATM; retirement money is their only option. Not only are there penalties for early withdrawal, that money will not earn any returns for the real retirement years. We are going to have a lot of homeless, sick, and poor old people in the coming years. This will be a huge socialital problem. Either they will be forgotten or the younger generation will have to pay for them and will not have any extra money of their own to spend on consumer products. The less money in 401ks, the less money for money managers, banks, hedge funds, insurance companies, stocks, and bonds to play with.

All-cash deals hit a record 43% of home sales during the first three months of 2014, according to RealtyTrac. That’s up from 19% a year earlier and the highest level reported since RealtyTrac began tracking the deals in early 2011.

Groovygirl can personally attest to this new trend. Cash will only last so long (even money from coming in from abroad), then there will be no buyers, cash or otherwise, forcing prices down like we saw in 2008-2011. This is a confirmation of Martin Armstrong’s long-term Real Estate Cycle for a further decline from 2015 thru 2032. This is what a debt collapse looks like in the US housing market. Periodic fire sales coming for the next two decades.

April 28, 2014

As totallygroovygirlfriday has mentioned before, she is not going to hold all her gold/silver forever. The next investment class that groovygirl will pursue is real estate, specifically residential home rentals and leases and then later, if luck is on her side, commercial real estate. This is just what gg is doing; there are lots of other investments out there. You are responsible for your own financial decisions.

Just to be clear, totallygroovygirl is NOT selling precious metals right now. GG is just dipping her toe into a new investment class to see what happens and learn.

Although the main investment move will be later, when gold/silver are closer to their highs in the long-term cycle (sometime between 2015-2020). But in preparation to that move, groovygirl has been researching and studying different types of real estate investing since 2003. Reading and researching are fine, but actual experience in an investment is a quick and excellent teacher.

GG always does a lot of research before she moves to action. She studied gold, silver and dollar cycles for four years, before she bought her first gold investment. And even after that, she moved slowly into the position she is in now.

Groovygirl has a long-term, life-time investing plan and is very patient. You may not be this way. That’s Ok. This transition from precious metals to real estate over the next 10 years is part of that life time plan.

Financial education and preparation equals financial freedom, which in turn, create nights full of restful sleep, and not worried-induced insomnia.

Now, as we know from Martin Armstrong’s Real Estate Cycle, the US housing market is in a long-term cycle and we are now on the downside of that 2007 peak, with the ongoing banking crisis/mortgage derivative crisis being the main driver of this long-term decline through 2032. There are ways of making money in any market condition, the important thing is to know which way the market is going.

Groovygirl has decided to make her first real estate investment now and not later for several different reasons. But she is only making one real estate investment right now.

Groovygirl’s real estate investment forecast chart is based on cash flow, not capital gains. In fact gg is expecting a tax loss, and will (hopefully) time that loss to offset other income. This is part of the exit strategy. Always know when you are getting out of an investment BEFORE you get in. If Martin is completely wrong and housing goes up, gg will have a gain, which will be nice. And if it moves sideways, gg will break even, and get the depreciation write off in the mean time. And if the government should change real estate tax laws in the meantime, she has some flexibility there too.

Groovygirl is making this move now for several reasons:

To find out if her cashflow projections really work. Any investment can look great on paper.

Find out if she really likes this type of investing. She thinks she is passionate about it, as much as she likes precious metals, but is that really the case? You really have to be passionate about the investments you are in. Making money only goes so far, when you are knee deep in details and drama. (That is the main reason gg doesn’t have a large position in stocks. She just isn’t that excited about them. That can always change.)

There are a lot of foreclosures and REOs out there right now, and therefore, cheap houses are on the market. The current pricing fits in with gg’s cash flow projections and creates a good ROI. After 2015, gg is sure it will be much better, that is why she is only purchasing one investment right now.

Real estate investing has great tax advantages, which would benefit gg’s circumstances now and later.

If it fails miserably, she will probably be able to get out before 2015 (the next downturn according to Martin Armstrong) with no or very little capital loss.

Groovygirl will expand on this move in future posts, but the main focus of the muses of the moment blog will still be precious metals and the financial crisis. She will share her experiences in this investment class and her overall plan after gold/silver. This is what groovygirl is doing with her money. You are responsible with what you do with your money.

Very important points:

She is not selling any gold or silver.

The real estate investment has NO debt attached to it. If it did, she would lose the options to get out of the investment with the capital input intact.

side musing: if we are facing the long-term collapse in real estate as Martin says, cash is king. Having 80-90% debt on a real estate investment will quickly turn into a capital loss on paper and will require more cash input to get out of. Example: let’s say you have an 80% mortgage loan on a rental creating monthly cash flow of $200. That is not a lot of breathing room. What if your house loses 30% in value, property taxes skyrocket, there is a new tax or fee for landlords in your area, or heaven forbid, the government takes away all the tax savings you get with real estate. These are scenarios where your cash flow would be impacted and your ability to sell the asset without putting in more cash to cover the mortgage obligation. You could very easily be stuck with an asset that creates negative cash flow and that’s not an asset. groovygirl would suggest no more than a 50% mortgage on a real estate investment in this environment, ideally no debt.

Groovygirl has been searching for the loophole. The loophole that will keep the real estate market going (in the face of the complete fall off of mortgage apps in the last six months along with higher rates) through 2015, Martin Armstrong’s date; and the loophole that will trigger the next, and according to Martin, extended decline in the US real estate market thru 2032.

Click here for Martin’s paper and chart on the US real estate 78-yr cycle.

gg thinks she found the loophole.

Here is an article that groovygirl disagrees with, but it has some interesting information about the new Qualified Lending rules. From the linked article:

With the dislocations in mortgage lending since the housing bubble popped, Fannie Mae and Freddie Mac have increased their share of the mortgage market significantly. When combined with lending from the Federal Housing Administration and the Veteran’s Administration, the government or government-sponsored share of mortgage lending has climbed to more than 90 percent in recent years. That is an untenable situation in the long run, but is unlikely to change much this year.

The good news is that new Qualified Mortgage lending rules from the Consumer Financial Protection Bureau exempt home mortgages that qualify for purchase or securitization from Fannie and Freddie. As a result, mortgage lenders won’t have to tighten their mortgage-underwriting requirements in response to QM as long as they sell their loans to the GSEs.

Side musing: groovygirl is feeling the same way she felt in 2005 and 2006: who in the world is left to get a mortgage? Haven’t we maxed out all plausable applicants? , no, some deceased people were left to carry on the housing market boom until 2007. Groovygirl just did not think dead people could get a loan and did not factor that in. Again, gg is thinking, with unemployment at a real rate of 23%, who else can possibly qualify for a mortgage, especially with all these new rules? Aren’t we maxed out. Apparently, it’s the GSEs to the rescue to help this thing along for another year or so.

Click here, looks like even the corporate buyers are slowing. But, they are saving their capital for the big transfer from Freddie and Fannie? Read on.

And here is the loophole for the next trigger….

Replacing Fannie and Freddie with private insurance (but with government bailout, if necessary). Be careful, groovygirl actually threw up when she read this. Click here. A quote from the link at Forbes:

Our political leadership is proposing that we abolish Fannie and Freddie for the sins of the banks and the mortgage lenders, and then hand over the keys to these same architects of the mortgage disaster that brought us to the brink of financial collapse. We are still healing and these are serious people proposing that we again legislate our way to mortgage prosperity, using no more common sense than that which got us into this mess. What could go wrong?

gg says: yes, what could go wrong? It looks like on the surface that getting rid of GSEs and “selling” them to private underwriting companies is a good thing. It will get the government off the hook for future collapses, right? Wrong!

But, the real reason for this extremely unwise decision. The transfer of wealth.

Here is a little tidbit from Catherine Austin-Fitts. She clearly knows the possibilities. It is a repeat of the same game as 1980’s.

Click here.gg says: But this time is totally different, we are in a global debt deflation, global currency crisis (Japanese currency trades can’t get us out of this one), and an aging population and debt-ridden younger population.

From Catherine’s link above. You pay for the detail. Bold is gg’s.

The current proposal to phase out Fannie Mae and Freddie Mac has the potential for ever greater back door shenanigans. Lot’s of money that can go out through the back door when the federal government turns huge amounts of federal credit over to private insurance companies. For example, when FHA engaged in coinsurance with private mortgage insurance providers in the 1980’s, the FHA General Fund lost 50% of the $9 billion underwritten in 3 1/2 years. They were paid a mortgage insurance premium of .50%

Given AIG’s traditional role in these and related areas, and Berkshire Hathaway’s relatively new activities in municipal bonds and local realtors, is this part of the work up to the ultimate in reengineering the federal budget and housing finance system by place? I want to see the players behind the scenes.

gg says: looks like we are right on schedule for the next mortgage/insurance/housing/banking/hedge fund crisis. The good news: fire sale housing prices for those with cash!

March 8, 2014

groovygirl had been very interested in these new reserve mortgages. Here is an excellent article that explains exactly what they are and how they work.

groovygirl is especially leery of the securities that these mortgages are wrapped in and sold to investors. Do not invest in those types of securities. Groovygirl believes the reverse mortgage industry will implode as soon as the first mortgages can’t pay their property taxes and insurance.

groovygirl also believes that although these types of mortgages will be a small percentage of over-all mortgages that they will help to intensify the decline in real estate in the US. Remember that Martin Armstrong has a long-term, 72 year cycle in US real estate that began its decline in 2007, with a slight uptick from 2012-2015, and will continue to decline into 2032. This is good news for anyone with cash wanting to buy houses at fire sale prices in the next 15 years or so.

John uses the original inflation index formula, before gov started jacking with it. Did your wages/income go up by 9% to meet the real inflation index? groovygirl’s didn’t. Who needs hyperinflation when wages are down or flat or zero because you are unemployed coupled with a 9% real inflation rate and climbing? In the main street household, that can feel like hyperinflation pretty quick. At the very least, it means less consumer spending, saving, and debt for big purchases like houses, cars, and student loans.

Layout of the full article:
1. STATISTICAL « SMOG »
2. THE RISE IN INTEREST RATES AND THE COLLAPSE OF US REAL ESTATE
3. THE END OF STOCK EXCHANGE EUPHORIA?
4. POLITICAL CHAOS
5. 2014, THE CLEAR BEGINNING OF THE END OF THE OIL ERA
6. SOLUTIONS ARE ON THE MARCH

January 17, 2014

Dodd Frank is slowing changing the housing and commercial real estate market. So far, gg’s research on Dodd Frank and its long-term impact confirms Martin Armstrong’s Real Estate Cycle conclusion that there will be a long-term decline in US real estate from 2015 thru 2032.

Click here for a summary of the latest Dodd Frank rules that took effect January 10, 2014.

This most recent rule is a modification of how balloon or interest only loans are designed and qualified will have the most impact on commercial lending. Commercial lending has been slowly moving to private lenders (ie. hedge funds, private equity trusts, individual accredited investors) for the last few years. This new rule will just continue to push that trend. A couple of things about that trend: private investors want higher rates/returns than the bank and commercial real estate has been built on balloon loan structures. The cashflow, revenue returns and business expenses are based on this underlying development budget: interest only loans and renewal of those “balloon loans” every 5-7 years (thus never really paying down the principal). During the last crisis, commercial real estate balloon loans got renewed by that flood of money from the Fed and influence from the gov in order keep the system afloat for a while. In other words, cans kicked down the road. Thoss loans will need private money or new loans structured or lot of cash or all of the above between 2015-2020. This will be a big impact. Private investor lending is in control of the real estate market now. Cash is king.

For residential lending, the impact will be a continued squeeze on prices. If you can’t get a mortgage, you can’t buy a house. And we have alot of foreclosures still sitting on the banks’ balance sheets that need to be sold. Foreclosures that can’t be refinanced because of continued unemployment or the new loan rules. You might note that student loans must be included in the debt-income ratio (which was lowered on 1-10-14). Young people will not be able to buy a house with a traditional mortgage without lower debt-to income ratio, a job, higher credit score, cash in the bank if they want a balloon mortgage, higher down payment, and cash for closing costs. Low mortgage interest rates from commerical banks doesn’t mean a thing if applicants can’t meet these new rules. Young people will rent when they move out of their parents’ house.

These rules are changing the real estate lending system in the US. Private lending is taking over: from hedge funds to crowdfunding. gg sees a few things happening from this change. Lots of cash/capital stuck in these funds until people realize that the system has changed and understand/learn how they can navigate/make a profit the new system. Real estate prices continuing to fall coupled with private lending will mean capital/cash will be lost in the coming years. (Some hedge funds and crowd-funding entities may become Ponzi schemes.) Private investors require higher rates, negating any impact “lower rate” moves from the Fed on the real estate market

If you are going to use cash to invest in private lending funds or other entities, do your due diligence. If you own your house outright, you could owner-finance and actually sell your home. But do your due diligence.

These new rules are designed to buffer non-performing loans from the secondary market impact (derivatives, etc.), like we had in 2007-2009 that banks use to hedge their loans and make their fees. It is designed to keep downturns in the residential and commercial real estate within that market to not move into insurance, stock, and bank markets. There will be unintended consequences to these changes. Lending moves to private capital (which may or may not be transparent), interest rates go up, and money will be lost as investors figure out how this new system works.

Be very careful, do your due diligence!! Young people especially seem to be geared toward trusting crowdfunding systems and use word of month as their due diligence. Learn to read a balance sheet and an income statement and ask for them from any investment you get involved with. And always have a exit strategy!! Think of this change like the tech boom of the end of the last century. Everyone got very excited, everyone eventually got in, and lots of people lost money, but a few got very rich.

The most important impact on the market will be the continued long-term contraction of the real estate market. gg highly doubts that the new lending investors and funds will take that into consideration for their ROI formulas. Bad info in, bad info out.

Cash is king and more people will rent. If you going to get in this system change in the next 15 years , the rewards will be great for the right deal structure. But, do your research and have a couple of exit strategies.

January 11, 2014

Click here for a chart from zerohedge about the low employment participation rate. This chart has economic issues influencing it, but also demographic issues (baby boomers retire). And technology issues (improved productivity requiring fewer workers). And education issues (employment opportunities shift from industrial to informational age, but education is still in industrial age). groovygirl could go on. Just realize it is not just the economic depression that is feeding this chart, it has other influences. And because it has other influences, it will not be fixed by an improving economy. This is a paradigm shift.

Regardless of the cause: unemployed people whether they are on a fixed income in retirement or just have no or low paying jobs, they do not pay taxes, they do not buy things, they do not invest in large purchases (like houses), and they sell their stocks to live. They spend whatever money they have an essential living expenses. And if they are older, they spend money on healthcare. This is a feedback loop that will haunt us (and other first-world countries) well past the initial economic downturn.